Tracking the trends 2017

The top 10 trends mining companies will face in the coming year

The 2017 edition of Tracking the trends takes a look at the trends that miners will face in the coming year and outlines a wealth of potential responses proposed from Deloitte member firms' mining professionals.

Understanding the drivers of shareholder value

Miners seek a balance between financial discipline and growth

Every public company understands that shareholder value is more than simply a source of competitive advantage. As a measure of value creation, it also affects a company's credit rating, ability to raise capital and market reputation. Yet, despite its importance, the mining industry has traditionally underperformed in this space. By balancing financial discipline and growth, taking a more forward-looking view on capital allocation and optimizing their asset portfolios, companies gain the ability to maximize shareholder value, generate superior growth and increase returns on invested capital.

Unlocking productivity improvement

Focus shifts to becoming serial innovators

Here's the quandary with cost cutting measures: at some point, you're bound to hit the law of diminishing returns. After years of ruthlessly driving out costs, mining companies are reaching that point. Yet, efficiency gains remain paramount. Although commodity prices have begun climbing, most miners now understand the danger inherent in ramping up spending as the cycle turns. Instead, companies are seeking ways to both sustain and extend the productivity improvements they have begun to realize. With the low hanging fruit gone, mining companies have turned to innovation. The challenge now is how to ingrain innovation into the fabric of the organization.

Operating in an ecosystem

Collaboration and unorthodox partnerships will drive the industry forward

It's no secret that the mining industry faces a host of issues. These run the gamut—from declining grades, a lack of financing and the slowdown in exploration to mounting stakeholder demands, a shifting regulatory environment and competition for scarce resources. Needless to say, if there were easy ways to address these issues, they would already be resolved. The fact that solutions remain elusive may be due, in part, to the way in which these challenges have been historically approached. Simply stated, mining companies have traditionally tried to tackle these issues on their own. This has yielded gradual improvements. Unfortunately, incremental change cannot drive exponential results. To realize major breakthroughs, the sector needs to shift from a go-it-alone mentality to one that recognizes the imperative of operating within an ecosystem.

The digital revolution

Mining starts to reinvent the future

Digital is a new era of business, a stepping stone in the evolution of the world enabled by the exponential use of technology. Digital disruption is changing business and operating models, reshaping competitive dynamics and, in some cases, completely altering the entire fabric of an industry. For miners, the commodity cycle, cost and productivity pressure mean that all the low-hanging fruit has gone. As such, innovation is needed to deliver the next wave of improvements. The potential for digital to reduce waste and create value is massive: eradicating execution waste by reducing process variability, eliminating process waste by enhancing decision making, reducing structural waste by automating processes and improving systems, and removing design waste by using digital technologies in the design of new assets.

Mapping the threat landscape

Cyber security concerns accelerate

As more data moves into the cloud, information technology (IT) and operational technology (OT) technologies converge, digital innovation becomes the norm and sensor technologies lead to a more mature industrial internet of things (IoT), mining companies will be more exposed to a broad array of online threats. As mining companies reinvent their future through digital, the threat of cyber-attack will be further amplified, particularly as companies leverage the power of IoT. That's a challenge for the mining sector, which largely remains behind the curve when it comes to cyber security.

Creating a shared vision for the sector

Moving from compliance to a potential source of competitive advantage

The relationship between governments and mining companies has long been fraught with tension. On the one hand, some jurisdictions unquestionably target the mining sector for a disproportionate share of taxes and royalty fees, require adherence to stringent beneficiation and local content rules, and have been known to significantly delay—and even revoke—operating licenses and permits. As world politics swing towards a more populist stance, this nationalistic view may gain further ground. On the other hand, mining companies are frequently perceived as having excessive control over a country's natural resources and causing undue damage to local environments, ecosystems and communities. As a result of this polarization, governments at every level and mining companies continually fail to maintain open and cooperative dialogues. To address the impasse, greater levels of understanding are required between mining companies and their local stakeholders.

Re-earning the social license to operate

Winning a social license to operate has never been a simple proposition-and that's doubly true today as community and social groups continue to raise concerns about the industry's impact on the environment. A number of catastrophic accidents over the past two years have brought this issue into sharp relief. Concerns over the pollution caused by greenhouse gas (GHG) emissions are sparking international dissent as well. In some jurisdictions, NGOs are taking their grievances to court, while technically-savvy activists turn to social media. Not surprisingly, this level of backlash can hamper miners' efforts to get approvals for new mines and expansions.

Supporting strategic priorities

Mining companies move to transform their operating models

When commodity prices first began to fall in 2011, mining company response was initially subdued. After years of record profit, few companies could perceive the depth to which prices would ultimately fall or the length of time it would take for them to rebound. As a result, the impetus to overhaul cost structures, invest in innovation, entrench productivity improvements and make substantive organizational shifts was limited. That has changed in recent years. Although some commodity prices have begun to recover, industry leaders have come to recognize the imperative of adopting operating models that can help them sustain growth amidst volatility. Companies that shifted their geographic focus, consolidated to realize economies of scale, diversified their assets or took other steps to strengthen their balance sheets in the latest round of cost take-outs are now considering how to align their operating models against these choices so that they can position themselves to meet their strategic objectives and sustain their new, lower cost positions.

Creating healthy and inclusive workforces

Wellness and diversity are rising on miners' agendas

Following the commodity price weakness of recent years, productivity improvement has been elevated to a mining industry mantra. Much of these efforts have been focused on taking out costs and streamlining processes. Behind the scenes, however, some mining companies are coming to realize that these steps don't go far enough. To ensure sustainable productivity improvements, companies must also foster healthy workforces and inclusive workplaces. Here's why: productivity has been demonstrated to flag at both companies that struggle with a high incidence of mental health disorders, as well as those that fail to embrace diversity of talent and diversity of thinking.

Adopting an integrated approach to reporting

Demands for greater disclosure and transparency increase

In a trend that has emerged from the shadow of resource nationalism, governments in a growing number of jurisdictions are demanding greater levels of transparency from their domestic extractive industries. Beyond tying up resources, this has put companies under greater scrutiny as governments seek to establish that each company is paying the right amount of tax.

Executive summary

Philosopher Friedrich Nietzche—admittedly not the cheeriest of men—was once quoted as saying “There are no facts, only interpretations.” The observation is surprisingly salient for today’s mining executives, whose perceptions of the market are strongly influenced by their particular operational realities.

Companies that mine iron ore or thermal coal, for instance, have an entirely different outlook than those heavily weighted in precious metals. Diversified miners face different challenges than companies with a niche commodity focus. Major producers are planning for a very different future than the one that appears on the horizon of most junior explorers.

These divergent views of the industry’s prospects emphasize a widening gulf in the sector. It seems no longer possible, if it ever was, to discuss the mining industry as a cohesive whole. This largely explains why so many companies are adopting such different strategic responses. Yet, although their approaches to the future will differ, all miners should be asking one common question: going forward, where should we play and how can we win?

The 2017 edition of Tracking the trends explores the top 10 issues mining companies may face. Once again, Deloitte’s global mining professionals share their experiences to help pinpoint strategies companies can take to succeed in today’s ever-changing market environment. This year, we also included a range of case studies to showcase how some companies are bringing new solutions to life.

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Gennady has more than 20 years’ experience, working in the tax and legal sectors in Russia and authored key elements of the tax legislation in 1992. He holds a Master’s in Economics, a Master’s in Law... More

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